Growth Stocks
Although growth stock picks can be highly volatile, they can make good long-term investments. They may be well-known stars or quiet gems, but they do share one common attribute—they are growing at a higher-than-average rate within their industry, or within the market as a whole, and could keep growing for years or decades.
And keep in mind that we focus on growth stocks, which have a good long-term history and favourable prospects. We downplay momentum stocks that tend to attract many investors simply because they are moving faster than the market averages, but are liable to fall sharply when their momentum fades.
There’s room for growth stock investing in your portfolio, but make sure you follow our TSI Network three-part Successful Investor strategy for your overall portfolio:
- Invest mainly in well-established companies;
- Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
- Downplay or avoid stocks in the broker/media limelight.
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Growth Stocks Library Archives
GENERAL ELECTRIC CO. $29 (New York symbol GE; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 10.1 billion; Market cap: $292.9 billion; Priceto- sales ratio: 2.0; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.ge.com) continues to shrink its GE Capital subsidiary as part of a plan to focus on its industrial businesses, including jet engines, medical equipment, appliances, lighting and locomotives. Including its recent deal with Wells Fargo (see left), the company has now sold $126 billion worth of GE Capital’s assets. It should reach its goal of shrinking this business by $200 billion by the end of 2016. After these sales, the financing business will supply just 10% of GE’s earnings, down from 42% in 2014. The Federal Reserve considers GE Capital a “systemically important financial institution,” so reducing its size should let GE avoid the tougher capitalization requirements and stress tests the Fed imposes on big lenders....
STANLEY BLACK & DECKER INC. $107 (New York symbol SWK; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 153.2 million; Market cap: $16.4 billion; Price-to-sales ratio: 1.4; Dividend yield: 2.1%; TSINetwork Rating: Average; www.stanleyblackanddecker.com) earned $234.1 million in the three months ended October 3, 2015, down 5.0% from $246.4 million a year earlier. The company spent $192.1 million on share buybacks in the quarter, so per-share earnings gained 1.3%, to $1.55 from $1.53. Sales fell 1.7%, to $2.8 billion from $2.9 billion. Stanley gets about half of its sales from outside the U.S., so if you exclude the negative impact of currency rates, sales rose 6%. Stronger demand for its hand tools offset lower sales of its building-security products and tools for industrial users. The company continues to benefit from a recent restructuring, while lower prices for steel and other raw materials are expanding its profit margins. As a result, Stanley now expects to earn $5.80 to $5.95 a share for all of 2015, up from its earlier forecast of $5.70 to $5.90. The stock trades at an attractive 18.2 times the midpoint of the new range....
ALCOA INC. $8.99 (New York symbol AA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.3 billion; Market cap: $11.7 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.3%; TSINetwork Rating: Average; www.alcoa.com) plans to split itself into two separate firms. One will focus on Alcoa’s upstream operations, which include mining bauxite ore and refining it into bulk aluminum products. This business will be the world’s fourth-largest aluminum producer, with $13.2 billion of annual revenue and $2.8 billion of gross earnings. The other company will focus on engineered aluminum products, such as components for cars and jet engines. This firm has $14.5 billion of annual revenue and $2.2 billion of gross earnings....
Symantec and Fair Isaac (see next article) continue to spend heavily on research, which is helping them profit as businesses spend more on cybersecurity and fraud prevention. We like the long-term outlook for both, but Symantec is the better choice right now. SYMANTEC CORP. $21 (Nasdaq symbol SYMC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 679.2 million; Market cap: $14.3 billion; Price-to-sales ratio: 2.2; Dividend yield: 2.9%; TSINetwork Rating: Average; www.symantec.com) sells computer-security technology, including antivirus and email-filtering software, to businesses and consumers. In 2014, the company said it would split into two publicly traded firms. One would keep the Symantec name and focus on antivirus and security software and services. The other, called Veritas Technologies, makes products for data backup and recovery....
FAIR ISAAC CORP. $93 (New York symbol FICO; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 31.1 million; Market cap: $2.9 billion; Price-to-sales ratio: 3.3; Dividend yield: 0.1%; TSINetwork Rating: Average; www.fico.com) makes FICO Scores, a computer program that helps businesses make better decisions about customer creditworthiness. FICO Scores dominates this niche market. Fair Isaac also sells software that helps credit card issuers control fraud and analyze cardholders’ spending patterns. The company spends 12% of its revenue on research, which helps it stay ahead of the competition. It’s now working to incorporate new data into its software. Right now, for example, FICO Scores doesn’t distinguish between people who carry balances on their credit cards (higher credit risk) and those who’ve never had a credit card but pay their utility and other bills off every month (lower risk). In addition, Fair Isaac plans to add data people publicly share on social media like Facebook. Both moves should make FICO Scores more accurate....
NORDSTROM INC. $65 (New York symbol JWN; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 188.2 million; Market cap: $12.2 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.3%; TSINetwork Rating: Average; www.nordstrom.com) owns and operates 304 stores in the U.S. and Canada that mainly sell upscale clothing and footwear. The company recently sold its credit card loans to Toronto-Dominion Bank (Toronto symbol TD) for $2.2 billion. It used the cash to cut $325 million from its $2.8-billion debt and pay a special dividend of $4.85 a share, worth a total of $900 million. Nordstrom will use the remaining funds to buy back $1 billion worth of its stock by March 1, 2017. That’s in addition to the $591 million remaining on its existing repurchase authorization, which expires on March 1, 2016....
TEXAS INSTRUMENTS INC. $59 (Nasdaq symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.0 billion; Market cap: $59.0 billion; Price-to-sales ratio: 4.6; Dividend yield: 2.6%; TSINetwork Rating: Average; www.ti.comtarget="_blank”) earned $798 million in the three months ended September 30, 2015, down 3.4% from $826 million a year earlier. The company spent $790 million on share buybacks during the quarter. As a result, earnings per share were unchanged at $0.76. Revenue declined 2.1%, to $3.4 billion from $3.5 billion. Sales of analog chips (64% of the total) rose 1.5%. (Analog chips convert inputs like touch and sound into electronic signals computers can understand.) Revenue from embedded processor chips (21%), which perform mathematical calculations, gained 2.0%. But revenue from other chips and calculators (15%) declined by 18.6%. However, free cash flow (cash flow less capital expenditures) rose 4.2% in the past 12 months, to $3.6 billion. That gives the company plenty of flexibility to keep buying back shares and raising its dividend....
PROCTER & GAMBLE CO. $77 (New York symbol PG; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 2.7 billion; Market cap: $207.9 billion; Price-to-sales ratio: 2.8; Dividend yield: 3.4%; TSINetwork Rating: Above Average; www.pg.com) makes products in five main categories: fabric and home care items, such as Tide laundry detergent (29% of sales, 24% of earnings); baby goods, including Pampers diapers (27%, 26%); beauty products, like Olay cosmetics (24%, 23%); grooming items, including Gillette razors (10%, 16%); and health care products, such as Crest toothpaste (10%, 11%). Wal-Mart supplies 14% of the company’s sales. Latest sale set to deliver big gains In the past few years, Procter has sold many of its less profitable brands, including its recent deal to transfer 43 beauty product lines, including Wella, Clairol, Max Factor and CoverGirl, to Coty Inc. (New York symbol COTY)....
DIEBOLD INC. $37 (www.diebold.com) is selling its North American electronic-security business, which includes burglar and fire alarms and video systems for accessing and monitoring buildings. The company will receive $350 million for these operations....
YUM! BRANDS INC., $72.89, New York symbol YUM, plans to spin off its operations in China as a separate firm. The company will hand out shares in Yum China to its own investors, who will not be liable for capital gains taxes until they sell. The company aims to complete the spinoff by the end of 2016. Yum China will operate 6,900 fast-food outlets under the KFC, Pizza Hut and Taco Bell banners. In the three months ended September 5, 2015, this division supplied 57% of Yum’s overall sales....